Mich. Admin. Code R 205.2001 — Definitions

Rule 1. As used in these rules:
(a) “Audit sampling” means the applicati on of an audit procedure to less than 100%
of the items within an account balance or class of transactions for the purpose of
evaluating some characteristic of the balance or class.
(b) “Audit workpapers” mean workpapers created by the auditor. The auditor shall
retain the audit workpapers and may only share them with the audited person or his or her
or its authorized representative to the extent disclosure is allowed by statute. The
workpapers provide support for the auditor’s opinion as to the prope r tax owed for a tax
period.
(i) Workpapers include information about the procedures followed, the tests
performed, the information obtained, includ ing identification of the documents or
accounts that constitute the ev idence pertinent to the audi tor’s review and conclusions
about an audited person’s ta x liability. The workpapers may include samples of the
documents or accounts that support the auditor’s conclusions.
(c) “Field audit” means the examinati on of the books and reco rds of a person to
determine the proper tax liability for a tax period. A field audit includes an examination
of the audited person’s books and records to test if they are sufficient to accurately
determine the tax liability for a tax period. All of the following apply:
(i) The books and records of a person are su fficient if they allow transactions to be
traced back to the source or forward to a fi nal total. For example, bank deposit slips,
receipt books, credit card charge slips, cash re gister tapes, canceled checks, credit card
sales slips, invoices, bills of lading, and shipping documents are source documents.
(ii) Sales transactions must identify the item sold. Sales records include, but are not
limited to sales slips, receipts, invoices, cas h register tapes or other original sales
documents.
(iii) Documents prepared for internal use by the audited person are not source
documents for purposes of traci ng a final total to a transaction if the documents do not
provide detail at the transacti on level and if the documents we re created in a process for
which the auditor cannot obtain reasonable assurance th at the transactions were
accurately reproduced from the original documents.
(d) “Indirect audit procedures” means the determination of the tax liability through
an analysis of the audited person’s business ac tivities using information from a range of
sources beyond the person’s declaration and formal books and records.

(e) A “review” generally requires the examination of only one or two documents
but in some instances may require a review of other related documents to substantiate an
item that was reported, or that should have been reported on a tax return or claim form. A
review is not a field audit. The audit standard s for field audits, rule 2 through rule 11 of
these rules, do not apply to reviews.
(i) Generally, department employees who conduct reviews are not required to meet
the minimum educational standards for auditors outlined by the Michigan civil service
commission but they must meet the mi nimum educational requirements that are
commensurate with the scope and expertise necessary to conduct a review.
(ii) Department employees who conduct reviews do not visit the taxpayer’s place of
business.
(iii) Reviews do not require an understanding of the entity or the entity’s internal
controls. Reviews do not re quire an assessment of a udit risk and do not involve
sampling.
(iv) Department employees who conduct reviews are subject to the standards for the
treatment of the public set forth in the ta xpayer bill of rights rules, R 205.1001 through R
205.1013, the ethical conduct standards set forth in the state ethics act, 1973 PA 196,
MCL 15.341 through 15.348, as well as civil se rvice commission rules and regulations.
Employees are also subject to the department policies and procedures set forth in the
treasury employee handbook regarding conf idential information, employee conduct,
training and development. Empl oyees are also subject to th e policies and procedures set
forth in the taxpayer right s handbook regarding conduct, including but not limited to
conflicts of interest, confidentiality, fa irness and impartiality, and courtesy and
consideration.
(v) The results of the review may be re ported to the taxpayer or claimant through a
letter, a notice of refund adjustment or a notice of intent to assess.